Weekly Update-May 5, 2012

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Weekly Update-May 5, 2012

By: Michael Vodicka

“Bigger picture, as always, it all comes back to the central banks. Everyone in the world knows the central banks will be there to support the cause on any material pullback in stocks or the economy.”

Stocks took a bit of a beating this week, posting their worst performance of the year after Friday’s jobs report came in below expectations. For the week, the Dow Jones fell 1.4%, the S&P 500 declined 2.51% and the NASDAQ shed 3.4%.

Their had been growing concern on the Street that the pace of jobs growth would continue to slow after last month’s slightly disappointing report. Those fears turned out to be well founded, with Friday’s closely watched jobs report coming in below expectations. That of course means fewer jobs, less spending and weaker confidence, none of which are good for the economy or consumer spending.

It also clears the way for some new issues to move to the forefront. Or in this case, old, new issues.

Like the Euro zone. We have talked about the Euro zone ad nauseum on these pages over the last year. But in spite of a long list of bailouts and support packages, the outlook remains fairly grim. The facts are simple. Government spending is completely out of control and totally unsustainable. It’s like that in the Euro zone and it’s like that in the United States. But please don’t think that means a single thing to any of these politicians or central bankers, because it doesn’t.

And even if angels were to ascend from the sky and impart financial discipline on these rogue nations, deep spending cuts would hurt the global economy, creating a virtual, “you’re screwed either way” scenario. So with the jobs report out of the way look for Europe to move front and center.

Bigger picture, as always, it all comes back to the central banks. Everyone in the world knows the central banks will be there to support the cause on any material pullback in stocks or the economy. And that’s exactly what this could be right now; a shorter-term correction after the market pumped out some big gains over the last few months. That could create some interesting opportunities.

Looking forward, we don’t have a lot of data hitting the wire this week, but the average are once again clinging to key levels; Dow 13K, S&P 500 just shy of 1,400 and the NASDAQ resting just below 3,000.

NASDAQ Daily Chart

 

 

 

 

So for the time being the bears have taken control of this market. That’s not great new for anyone long stocks, but bigger picture it might be a good time to start thinking about what names you want to buy before the Fed jumps back into the game and juices the market.

Let’s get into some updates.

Updates:

On the surface it looked like Visa, Inc. (V) had a pretty solid quarter. Revenue was up 15% from last year to$2.6 billion while earnings of $1.60 came in ahead of expectations of $1.51. But the company’s primary engine of growth, its debt-card business, showed signs of slower growth, losing market share to industry competitor MasterCard and suffering from the absolutely ridiculous D0dd-Frank financial regulation bill that curbed how the company packages its services. Bigger picture, earnings we’re still up 30% from last year, and estimates inched higher on the quarter, both positive trends. And Visa is still one of the most recognized brands in the world. So even though we are seeing some headwinds, Visa is still a good place to capitalize on the popularity of electronic financial transactions. With a close at $117 on Friday, shares remain near the 52-week high at $125.

Buckeye Partners LP (BPL) had a tough week, missing Q1 estimates badly and falling 10%. So what’s the deal? According to BPL, it was a blip, suffering from warmer weather that hurt demand for refined petroleum products. The company also said it saw some short-term weakness from exiting the energy services business in the Midwest. So even though this MLP had a tough week, with incredibly high barriers to entrance in the refined petroleum storage and transportation business and a fat 7.2% dividend yield, there are still reasons to like BPL.

And finally, going out with a winner, we have Whole Foods, Inc. (WFM), blowing past analyst expectations and raising its full-year guidance. WFM hit a new all-time high on the news, so for the time being this higher-end food store is firing on all cylinders.

That’s all for this week, but until next time, here is an article discussing how the Fed will react to the weak jobs data. Enjoy!

Investors Eye Fed’s Reaction to Slower Jobs Growth

Your Investment Partner,

Mike

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